Jailed Mexican labor leader linked to properties in San Diego County
Mexican labor leader charged
with embezzlement linked to properties in S.D. County

Elba Esther Gordillo’s upscale Coronado getaway was hardly a secret. The location of the Mexican labor leader’s Southern California residence for years was known to friends and foes alike.

But now the six-bedroom house in Coronado Cays sits unoccupied, key evidence in a Mexican government investigation centered on the 68-year-old Gordillo, longtime head of the 1.4 million-member National Union of Education Workers. Since Gordillo’s Feb. 26 arrest by Mexican federal agents, she has remained behind bars in Mexico City, charged with embezzling close to $160 million in union funds to underwrite a lavish lifestyle.

Nearly a month after her detention, questions linger on both sides of the border: How could Gordillo and a small circle of alleged collaborators have gotten away with it for so long? With an annual reported income in recent years of less than $23,000, how did Gordillo and her multimillion-dollar expenditures manage for years to evade government scrutiny in Mexico? And how would she have been able to transfer funds to pay cash for costly homes in San Diego without calling the attention of U.S. banks and government agencies?

Mexican authorities are connecting Gordillo to two properties on Coronado Cays, both paid for with cash. A search of San Diego County property records by U-T San Diego found documents that link two Chula Vista houses to Gordillo’s grandsons, both involved in politics in Mexico, one of them currently serving as a federal legislator. Documents connect one of the addresses directly to Gordillo’s Coronado residence.

In announcing Gordillo’s arrest late last month, Mexico’s attorney general said that investigators from Mexico’s Financial Intelligence Unit found union funds were used to pay for $3 million of Neiman Marcus charges on Gordillo’s account and more than $17,000 for bills to plastic surgery clinics and hospitals in California. Another $2 million was deposited to an account in the name of Comercializadora TTS de Mexico, a Mexican company listed on county property records as the owner of Gordillo’s residence and another property across the street.

“It’s a huge win for people who are following the money trail,” said Celina Realuyo, an assistant professor of national security affairs at the National Defense University in Washington, D.C. “It is going to be really interesting to see who else is implicated.”

John Owens, formerly head of the criminal division at the U.S. Attorney’s Office in San Diego who is now an attorney in private practice, said one question certain to arise north of the border is “did anyone in the United States help to facilitate these crimes? These types of crimes are not usually committed alone.”

Though Gordillo kept a low profile in San Diego, many knew she had a house here. Even teachers union members from Tijuana carrying protest signs had no problem locating the house. A YouTube video uploaded in 2010 shows a small group outside Gordillo’s Coronado Cays residence, and speaking with her through an intercom. “We know that you bought this house with our funds,” one protester is heard saying.

Tough to uncover

The U.S. and Mexican governments in recent years have committed to a number of measures to curb money laundering, the practice of disguising the source of illicit income — from limiting dollar deposits in Mexican banks to allowing the IRS to collect data on nonresident deposits in U.S. banks.

Yet critics say there are far too many ways to escape scrutiny. In the United States, property owners are easily able to hide behind anonymous shell companies that don’t carry their name, and banks themselves may not know the true identity of account holders.

“We think this is the first tool of choice for somebody to hide money in the United States,” said E.J. Fagan, spokesman for Global Financial Integrity, a Washington, D.C.-based group that seeks to curb the flow of illegal money across borders.

“There are lots of different loopholes in the system,” said Stefanie Ostfeld, a senior policy adviser with Global Witness, a group that investigates money laundering and natural resource exploitation.

As more of Gordillo’s case is expected to emerge in coming months, groups and government agencies fighting to curb money laundering say they will keep pushing for regulations and legislation to close the loopholes that allow illicit funds to move across international borders.

Among the changes promoted by Ostfeld’s group and others are requiring real estate and escrow agents to check the source of funds being used to purchase properties, closer scrutiny of foreign leaders with U.S. bank accounts and requiring banks to know the owners of the accounts.

“If you’re paying $4 million for a property, the real estate agent should have to report that,” she said.

Global Witness was able to link the 2006 purchase of a Malibu mansion to a high-ranking government official from Equatorial Guinea for $30 million. U.S. prosecutors have moved to seize the residence, accusing its owner, Tedodoro Nguema Obiang Mangue, son of the country’s dictator and a high-ranking official, of plundering his country’s natural wealth to finance his lifestyle.

In San Diego, “there’s a lot of drug money that gets invested into property,” said John Kirby, a former federal prosecutor and now a criminal defense attorney in San Diego. The practice not only allows traffickers to hide their income, Kirby said, but also gives them safe haven — across the border from enemies in the drug trade.

One case in 2010 involved a customs broker, Antonio González, who under a plea agreement in a drug conviction forfeited houses he owned in south San Diego and Chula Vista — along with high-end automobiles and a plane — because they were purchased through illegal means.

U.S. banks and other financial institutions reported more than $41 billion in “suspicious” money was filtered through title and escrow companies from 2003 to 2011, according to a study by Financial Crimes Enforcement Network, a bureau of the U.S. Treasury Department that investigates questionable money transfers.

While banks — and more recently mortgage lenders and loan originators — are required to establish anti-money laundering programs and report suspicious financial activity, that requirement does not apply to escrow and title companies.

Escrow agents act as neutral third parties who collect and disburse money during the last stages of real estate deals. Title companies identify possible hurdles such as unpaid liens before properties are transferred to their new owners.

They’re essential to the closing process of any residential real estate. But unlike other financial entities, such as banks or mortgage lenders, they’re not subject to the same scrutiny when it comes to suspected activities like money laundering.

Andrea Schmitt, a San Diego escrow agent who’s in favor of reforms, said cash deals are considered easier and more desirable because they involve fewer steps during the closing process compared to sales with mortgages.

The process of securing financing requires extensive checks on income and employment.

“It’s not something that has to be regulated at all,” Schmitt said. “I just need to make sure I get the money.”

Following the trail

All this makes it difficult for law enforcement to track.

“We do recognize there is a risk,” said Steve Hudak, a spokesman for the Financial Crimes Enforcement Network, referring to ill-gotten gains that could be funneled through title and escrow companies.

According to Mexico’s attorney general, Jesús Murillo Karam, the trail that led to Gordillo’s arrest began with a report last December to Mexico’s federal Financial Intelligence Unit of an unusual bank transaction. The transaction, for 2.6 million pesos or about $210,000, was traced to Nora Guadalupe Ugarte Ramírez, an employee of the Mexican teachers union.

Investigators who subsequently unraveled a series of money trails from union accounts discovered that one led to banks in Liechtenstein and Switzerland and payments to Comercializadora TTS de Mexico, owner of the two multimillion-dollar properties in Coronado Cays.

Gordillo’s name is largely missing from public records for the properties. A review of public documents for the Coronado properties found the sole trace of her name — and signature — was on an undated letter authorizing a second-floor addition to the residence at 23 Green Turtle Road. Purchased in 1991 for $1.15 million in cash, its current assessed value is $4.7 million. Cash was also used to buy a second property at 1 Green Turtle Road, a $4 million transaction recorded in August 2010.

The records identify the firm’s majority shareholder with 99 percent of the company as Zoila Esther Morales Ochoa Fernández, or Zoila Armendariz, Gordillo’s mother who died in 2009. The other 1 percent is owned by Alvaro Q. Díaz, identified in Mexican news reports as a Miami attorney.

Public records link Gordillo’s residence to a third $300,000 house in the Otay Ranch area of Chula Vista that is owned by her grandson, Othon Sánchez Arriola, a former state legislator for Morelos state in central Mexico.

The property was purchased in 2011 with cash, records show. The house is the address of Ha Property Management & Processing Services Inc. and its registered agent Héctor Avila Rivera. The company last year wrote checks for property taxes on both of Gordillo’s Coronado residences. The telephone number listed for the company has been disconnected, and a woman who answered the door of the house earlier this month said she was not authorized to speak.

At about the same time, another Gordillo grandson, René Fujiwara Montelongo, a Mexican federal legislator, purchased a house in the same cul-de-sac for $310,000 in cash, according to a records search by U-T San Diego. No one was answering the door of the residence one afternoon several days ago.

Neither of the Gordillo grandsons’ properties has been mentioned by Mexico’s attorney general, and it is not clear whether they are part of the investigation of Gordillo.

The U.S. Attorney’s Office declined to say whether or not they are investigating Gordillo. U.S. Customs and Immigration Enforcement, whose agents were seen searching the house earlier this month, also declined any comment.